Stablecoin

Definition

Stablecoins may be fiat-backed, crypto-collateralized, or algorithmic. Peg design and reserves determine depeg risk, and because DeFi liquidity often sits in stables, peg breaks can cascade across protocols.

Research stables by redemption path and collateral quality, not by logo familiarity. Fiat-backed designs depend on banking and attestations; crypto-collateralized designs depend on liquidation health; algorithmic designs depend on reflexive demand.

Depeg risk is not theoretical. When a stable breaks, leveraged loops and LP positions unwind. Map where a protocol’s TVL actually sits before treating “stablecoin liquidity” as safe. Regime shifts can rewrite beta faster than a static label admits.

Regulatory and issuer risk can matter as much as smart-contract risk. Know who can freeze, redeem, or fail to redeem under stress. Path-dependent pain is why position size is a research output.

Why researchers care

• DeFi liquidity often sits in stablecoins — peg breaks cascade.
• Know the collateral and redemption path.
• Treat algorithmic stables as higher risk by default.
• Issuer and freeze powers are part of the risk surface.

How to use it in research

• A lending market concentrated in one stable — stress-test oracle and depeg scenarios.
• Crypto-collateralized stable near liquidation thresholds in a volatility spike — watch peg tightness.
• Algorithmic stable relying on a companion token’s market — treat reflexivity as core risk.

Common mistakes

• Assuming all dollars on-chain are equivalent risk.
• Ignoring redemption frictions during bank or chain stress.
• Counting stable TVL as risk-free demand for a protocol token.